Dead Money? What Dead Money? It’s Not So Easy to Define

Canadian policymakers, including Canadian Finance Minister Jim Flaherty and Bank of Canada Gov. Mark Carney, have blasted Canada’s corporate sector for sitting on record cash hoards, so-called dead money, rather than re-investing in new technology and plants that might help boost Canada’s productivity levels and add to economic output.

Although businesses have increased the share of assets they hold in cash over the past decade, C.D. Howe Institute’s Finn Poschmann said in a report, they have decreased the share of other, “non-income earning current asset components,” including inventories and accounts receivable. He said businesses overall are keeping more cash–and less inventory–on hand in part because of the global shipping container revolution, and the advancement of just-in-time delivery methods.

Mr. Poschmann concedes there is some truth to policymakers’ charges. Cash and deposits or cash equivalents held by non-financial corporations have almost doubled over the past decade, as a share of assets, C.D. Howe estimates.

Companies are taking a cautious approach to economic headwinds, said Mr. Poschmann, as has been common in recent post-recession periods, as “perceived market risks, or risk-adjusted returns, associated with global economic outlook” discourage investment in fixed assets.

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